Will QGC Bid Hit Origin Bid?

Sydney, Aug 21, 2008 (ABN Newswire) - Will this deal kill BG Group's multi-billion bid for Origin Energy?

BG Group has launched a hostile $13.7 billion takeover for Origin Energy Ltd, in part to secure its gas resources in eastern Australia.

Origin has rejected that offer and is looking for a partner for its coal seam gas reserves in Queensland.

BG Group owns 9.9% of Queensland Gas, can go higher by spending more proving up reserves, and will partner the company in an export LNG project in Gladstone.

Now QGC has moved on a Queensland competitor, the second in two months. It had already launched a bid for Roma Petroleum NL to expand its coal seam gas acreage in the Surat Basin.

And yesterday QGC went into a trading halt after announcing it could soon announce an agreed transaction.

That emerged yesterday afternoon as an agreed offer to buy Sunshine Gas for at least $837 million to add its reserves to those it is developing for the export LNG plant with BG.

QGC is offering five shares for every eight Sunshine Gas shares, or $1.65 in cash per share plus two shares for every seven shares in Sunshine, which is recommending the offer to shareholders.

The all-scrip offer values Sunshine at $2.70 a share, while the cash and scrip offer values it at $2.88. Sunshine Gas closed Tuesday at $2.20 before being halted from trading yesterday morning.



Queensland Gas shares closed at $4.32 and Origin shares fell 13 cents to $15.97.

QGC and BG Group say they will spend upwards of $8 billion on the LNG plant at Gladstone in central Queensland, plus tens of millions of dollars more on proving up the necessary reserves.

Sunshine Gas has an alliance with Japan's Sojitz Corp and is one of four other consortiums proposing an LNG development utilising coal seam gas as feed in Queensland (one of the others, Santos, sold a 40% interest in its planned LNG plant and reserves to Petronas of Malaysia for $US2 billion, a deal that helped sink BG's first attempt to buy Origin).

"QGC can increase its financial returns by supplying additional CSG (coal seam gas) to the Gladstone-based plant, which will have potential capacity of three liquefied natural gas (LNG) production trains totalling up to 12 million tonnes a year of LNG," managing director Richard Cottee said in a statement.

He said the bid was furthering QGC's fundamental strategy to grow into a leading supplier of gas-fired electricity in the domestic market. Enlarged reserves will produce more gas, and more effective gas competition, for the domestic market;

This, he said in the statement, would be done by: 

Providing access to fully develop a larger portfolio of exploration and production permits across Queensland's premier gas basins;

Ensuring independent certified reserves and production for new projects in addition to those covered by agreements with BG Group, QGC's Queensland Curtis LNG partner ;

Developing an expanded resource base to support an accelerated multi-train LNG project with ensuing capital and operating synergies.

That would indicate he sees no possible problems for the BG relationship in the deal, and lots of upside as it will be cheaper to get the required reserves for the LBG project by buying them, rather than finding them.

But from an announcement by the ACCC this week, BG is looking to distance itself from QGC to try and get its Origin offer over the line.

The Commission said it will conduct market inquiries on undertakings that have been offered by BG Group to address competition concerns arising from BG's proposed acquisition of Origin Energy Limited.

"The undertakings propose that BG would unwind joint marketing arrangements between BG and Queensland Gas Company for the supply of gas to domestic wholesale customers in southern Queensland.

"The undertakings also contemplate that BG will relinquish its current right to appoint a director to the board of QGC and restructure arrangements between BG and QGC in relation to the exchange of commercially sensitive information, such that BG will not seek or obtain information in relation to the terms on which QGC supplies gas to domestic wholesale customers in southern Queensland."

If that's the case, the relationship in the LNG project might be questioned because the purchase price for the gas supplied to the project will be crucial, especially when compared to what other gas users were paying.

Sunshine Gas is a nice target: "Sunshine has established independently certified gas reserves at its 100 per cent-owned Lacerta CSG project near Roma and has extensive acreage with considerable exploration potential," Sunshine Gas managing director Tony Gilby said in a statement to the ASX.

And to cement the chances of its offer getting up, QGC has entered into a pre-bid acceptance with Sunshine Gas for 15% of the latter's shares.

BG has bid $15.50 for Origin and depending on its level of ownership and involvement in the QGC gas plant project; it might be able to still continue the deal.

QGC's shares component of the offer will water down the 9.9% current stake of QGC, but also the 27% stake held by AGL Energy, which has so far not made any sort of move in the play. It seems to be holding on to its stake to make sure it has plentiful supplies of gas for its Southeast Queensland consumer and industrial users.

So the purchase of Sunshine Gas might not necessarily see a tightening of BG's group on QGC or on its gas reserves. 

But it will control half the end use for much of that gas in its deal with the gas plant which now seems to be heading towards three trains instead of the original one to two.

Origin rejected BG's bid in its target statement this week.

"Your directors believe BG's offer undervalues Origin's existing business and outstanding prospects and therefore recommend that you unanimously reject BG's offer," Australia's second biggest energy retailer said in a release posted to shareholders on Tuesday.

Origin said it planned to provide shareholders with an independent valuation report containing "all relevant information about Origin's value and prospects" before BG's offer closes on September 26.

"Origin is a strongly performing, Australian integrated energy company with an impressive track record of growth," Origin chairman Kevin McCann said in the statement.

"Origin has developed the leading position in Coal Seam Gas (CSG) in Australia and the strength of this position will be a key driver for continuing growth."

He said the company had short-listed a number of global partners interested in accelerating development of the CSG reserves.

BG took its offer hostile in June when it got nowhere with Origin in talks.

"Origin has rejected BG Group's offer but has comprehensively failed to justify its position," BG chief executive Frank Chapman said in a statement replying to the Origin rejection. We remain confident that our offer represents full and fair value for Origin's shareholders."

He added that the Australian firm had supplied no "forecast or other financial information which could assist shareholders in valuing the company and making a timely and informed decision."

The question is now whether QGC has made it harder for BG to move on Origin, or whether it is still game on.


 

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